The Labor Market Effects of Rising Health Insurance Premiums

PWP-CCPR-2006-038

Abstract

We use variation in medical malpractice payments driven by the recent “medical malpractice crisis” to identify the causal effect of rising health insurance premiums on wages, employment and the distribution of part-time and full-time work. We estimate that a 10 percent increase in health insurance premiums reduces the aggregate probability of being employed by 1.2 percentage points, reduces hours worked by 2.4 percent, and increases the likelihood that a worker is employed only part-time by 1.9 percentage points. For workers covered by employer provided health insurance, a 10 percent increase in premiums results in an offsetting decrease in wages of 2.3 percent. Thus, rising health insurance premiums may both increase the ranks of the unemployed and place an increasing burden on workers through decreased wages for those with employer health insurance and decreased hours for those who may be moved from full time jobs with benefits to part time jobs without.